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Analysis: Trump is taxing Americans to support farmers struggling from his trade war

Dave Sweeney on his property in Alden, Iowa, in August 2017. He and his wife, Annette, voted for President Trump and are supportive of efforts to reduce environmental regulations. Washington Post photo by Bonnie Jo Mount

To hear President Donald Trump tell it, the calculus is simple.

Yes, farmers are feeling the pain of Trump's trade war. China retaliated against tariffs imposed by the U.S. by adding tariffs of their own to American-made products, including crops. On Monday, soybean futures hit their lowest price in a decade.

But, Trump argues, those tariffs are "being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products." Farmers, he claims, will end up being the "biggest beneficiaries of what is happening now" because either China will soon resume buying American crops or the U.S. "will be making up the difference" using "the massive Tariffs being paid to the United States." Win-win.

The problems with that equation are twofold. The first is that China isn't paying all of the tariffs and that much of the increased cost is being incurred by American consumers. The second problem is that we can look at the support being given to farmers in another light: Trump is taxing consumers to bolster farmers, a core part of his political base.

Precisely how much American consumers are paying as a result of the tariffs isn't known. A February report from a group called Trade Partnership Worldwide estimated that an average family of four would end up paying $767 more a year because of the tariffs, at a cost of 0.37 percent of the U.S.' gross domestic product.

Another report by researchers working with the Centre for Economic Policy Research determined a monthly cost for the tariffs borne by consumers. That included $3 billion a month that was a direct payment of the tariff fees and another $1.4 billion that stemmed from companies shifting their supply chains to use higher-cost components.

In other words, instead of getting Component X from China at price $P, the new cost of $P + tariff means that in some cases it makes sense to instead pay price $Q, where Q is higher than P but potentially less than P + tariff. That raises the cost of the final product, causing consumers to pay $1.4 billion more a month.

In some cases, companies probably changed their sourcing out of concern that tariffs would go even higher - which, this month, actually happened. Columbia University's David Weinstein, one of the authors of the CEPR paper, told The Washington Post by email that the increase in tariff rates meant that the monthly cost to consumers would likely double - largely as a function of companies switching to more expensive components from other countries. (The direct tariff payments would decline in part because products from China are that much more expensive.)

Consumers are now paying $8.8 billion more a month, Weinstein estimated, an average of about $70 a month per household - in line with the Trade Partnership estimate. Since November - and assuming that May and June are costlier to consumers - the monthly cost to consumers looks like this.

In total over that period, consumers will have paid $22.4 billion in tariff costs directly - taxes - and $21.6 billion in higher costs due to supply chain changes.

Last year, the government established a program meant to provide economic support to farmers affected by the trade war. A spokesman for the Department of Agriculture confirmed the total amount paid out by that program as of Monday, May 13, was $8.52 billion, with payments most heavily going to producers of soybeans, corn, wheat, cotton and sorghum.

But here we see the calculus laid bare: Farmers get $8.52 billion of the $18 billion paid in tariffs by consumers through April.

It's important to remember that farmers are central to Trump's political rhetoric and a key part of his base. An October 2016 survey of producers conducted by Agri-Pulse found that two-thirds of respondents identified as Republican and that they supported Trump over Hillary Clinton by more than a 3-to-1 margin. (The results among women farmers were about even, but women made up less than a fifth of respondents.)

The Agriculture Department spokesperson also identified the states which had received the most support from the trade-war program. The state that got the most support was Illinois, followed by the states of Iowa, Kansas, Nebraska and Indiana, all of which voted for Trump in 2016 by between 9 and 25 points. It's also safe to assume that most of the support that went to Illinois didn't go to Chicago Democrats.

The equation gets more complex. With his reelection bid looming, the Trump administration taxes consumers to the tune of $18 billion through April, $8.52 billion of which goes to a group that overwhelmingly supported him in 2016 heavily in states that he won.

That said, the politics aren't exactly simple. At times, farmers have been willing to give Trump the benefit of the doubt on the trade fight. A soybean farmer I spoke with last August in Pennsylvania described the tariff fight as "a small loss for a big-time gain." Whether that optimism holds nine months later - and whether it will last for another year - is unclear.

There's an irony to Trump's strategy here. During the administration of Barack Obama, Trump and his party regularly excoriated Obama as "picking winners and losers," shunting government resources to programs that he supported at the expense of the free market. A Department of Energy program which gave a loan to a green-power company called Solyndra was a frequent target of Trump's after Solyndra went belly-up (even though the loan program itself ended up making money). To Trump, Obama's (indirect) support of the company revealed bias and corruption.

The loan Solyndra got was one-sixteenth of what's been paid to farmers.

Author Information:

Philip Bump

This is article was written by ____, a reporter for The Washington Post.